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Budget Outlook

Series/Special. The potential effects of automatic spending cuts. New.

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Us 22, America 12, Wisconsin 8, Georgia 5, Elmendorf 4, Washington 4, Martin Dempsey 3, Fha 2, Pentagon 2, United States 2, Boehner 2, Martha Roby 2, Florida 2, Indiana 2, Mark Welch 1, Sandy 1, James Amos 1, Panetta 1, Greenspan 1, Steve Mcmahon 1,
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  CSPAN    Budget Outlook    Series/Special. The potential  
   effects of automatic spending cuts. New.  

    February 16, 2013
    1:30 - 4:00pm EST  

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1.4% growth. a full .6% of that growth is attributed to the sequester. if we were to replace the sequester, you would add 0.6% to that growth. we are talking about hundreds of thousands of jobs lost this year. we on the democratic side have proposed a plan to replace the sequester with a mix of cuts dealing with subsidies and direct payments, but also saying we should not be providing tax breaks to big oil companies. and we believe we should apply to the buffet rules to the people making over two million
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dollars per year. we heard about all the tactics in the tax code. we should get rid of some of those for the purpose of deficit reduction. that is what our plan does in the short term and that is what it would do in the long term. we hope we can have an opportunity to have an up and down vote on the plan that we have put forward. at least two or three times we are going to be asking for a vote in the rules committee for that proposal. i hope we can have an opportunity to have a free flow of debate and ultimately a vote. thank you mr. chairman. >> i would love to begin the debate right now but we have a hearing to get into. the floor is yours. >> thank you mr. chairman.
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i appreciate the opportunity to be here today and discuss with you cbo's outlook for the budget and economy for the next 10 years. are analyzing shows that the country continues to debate a very large economic challenges. i will discuss the economy first and then i will turn to the budget. we anticipate economic growth will remain slow this year because of the gradual improvement in underlying economic factors will be offset. the good news is that the effects of the financial and housing prices appear to be gradually fading. we expected a upswing in housing construction and increasing availability of credit will help spur a virtual cycle of income, consumer spending, and business investment over the next few years. however several policies that
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will help bring down the budget deficit will result in a drag in economic activity. the increase in tax rates and the cuts in federal spending scheduled to take effect next month will mean reduced spending by both households and the government. we project an inflation adjusted gdp will increase by about 1.5% in 2013. it would increase roughly 1.5 percentage point faster were it not for that fiscal tightening. under current law we expect the unemployment rates will stay above 7.5% through next year. that would make 2014 the sixth consecutive year with them -- with unemployment so high since the 1930's. we expect gdp will pick up to 3.5% in 2014 and the following
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four years. the gaps between the gdp and what it is capable of producing on a sustained basis will still not close quickly. under current law we expect output to remain below potential levels until 2017, nearly a decade after the recession started in december 2007. the nation has paid and will continue to pay a big price for the recession and slow recovery. we estimate the total loss in output relative to the potential in 2007 to 2017 will be equivalent to half of the total output of the -- the total outlook the country produced last year. the federal budget deficit will shrink in 2013 for the fourth year in a row. an estimated $845 billion, the deficit would be the first in five years below one trillion
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dollars. only about half as large relative to the size of the economy that deficit was in 2009. our projections based on current law shows deficit continued to fall over the next four years before turning up again in the second half of the decade. it will call nearly seven trillion dollars in the decade as a whole. federal revenues are projected to reach 90% of gdp in 2015 and beyond. both the expanding economy and schedule changes in tax rules. that 19% figure compares to 18% in the last 40 years. federal spending will fall relative to the size of the economy over the next several years and rise again. the decline can be trait -- can be traced to discretionary funding and a drop-off.
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later in the decade the return of interest rates to more normal levels will push up to nearly the highest share of gdp in 50 years. throughout the decade, the aging of the population, a significant expansion of federal health-care programs, and rising health-care costs per person, will push up spending on the largest federal programs. but 2023, spending reaches 23% of gdp production, compared to a 40 year average of 21%. -- to a four year average of 21%. under current law as we project the debt in 2023 will be 77% of gdp. that will be far higher than the 30% average of the past four years. it will be on an upward path. such high rising debt is a significant concern for several reasons.
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first, high debt means the crowding out of capital investment will be greater. you will have less flexibility to use tax spending policies to respond to unexpected challenges like a recession or war. there will be a heightened risk of a fiscal crisis in which the government would not be able to borrow at federal interest rates. second, that would be even larger if current laws were modified. if lawmakers eliminated the automatic spending cuts set to take in march but replaced it with the original control act, if they prevented the sharp reduction, scheduled for next january, and extended the tax provisions scheduled to expire, and if no offsetting changes were made then budget deficits would be substantially larger than our baseline projection.
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third, that might be larger than up or projections because even the original tax on discretionary funding in the budget control act would reduce spending to just 5.8% of gdp in 2023, a smaller share than for any year in the past 50. because of the allocation of discretionary funding is determined through annual appropriation acts you and your colleagues have not yet decided which specific government services and benefits will be restrained or cuts to make -- the street or cut to meet that cap. fourth, projections of the 10 year period covered in this report do not reflect long-term budget pressures. because of the retirement of the baby boomer generation, rising health-care costs, a wide gap exists between future health-care costs and benefits and services people are accustomed to receiving from the
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federal government. the tax revenues that people have been sending to the government -- it is possible to keep tax revenues at their historical average percentage of gdp, but only by making substantial cuts relative to current policies in the large benefit program that 8 acres large group of people at some point -- that a a large group of people at some point in their lives. deciding now what combination of policy changes to make to resolve the budget in balance would allow graduate implementation of those changes, which would give household and business is time to adjust their behavior. thank you. >> thank you. let me get into the debt itself. we had the state of the union address last night. we all go to the microphones and give our play-by-play analysis
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of what we thought of the speech and what we like and didn't like. one thing stood out that gave me a real cause for concern -- it seems that they think the heavy lifting on debt reduction is done and we just have a little bit left done. we have two 0.5 trillion dollars of deficit reduction in the bank, we are not much farther to go to finish the job. this $2.5 trillion does not count. the first count for payroll tax holiday, $11 billion. it doesn't count for the multiple unemployment extensions, for the 24% increase in non-defense discretionary spending for the first two years of the administration, the
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disaster spending that has taken place or the san the supplemental, for the debt servicing for all of that additional spending. there's about $500 billion of deficit reduction, not to $two 0.5 trillion. when you hear such projection, i really worry that part of our government are deluding themselves and thinking this has been taking care of. you said in your own report that debt has doubled from 36% of gdp to 73% on 2012 by 2023.
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we could go as high as 83% of gdp of publicly held debt. total debt is about 100% of gdp. here is the question i have. the green is what he said -- about 18.3%. the blue lines are all of the tax increases the president has supported and endorsed. much of this has already been enacted. the fiscal cliff deal enacted a good portion of the blue. the red are your projections on where spending is going. even if we got every tax increase that the president has called for, we are not even scratching the surface. we are not even getting close to fixing this problem. the concern i have is the couple
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of things. what happens if we do not get this under control? what does a debt crisis look like? what happens to families? what happens to a nation if our debt continues on this burden? that is question no. one. question no. two -- and i am going to ask you this in writing -- give the different interest rate scenario. what happens if interest rates rise faster than you are -- faster than the projected? >> two points so that people can understand, we have not updated our long-term budget projections. i presume this slide is our projection on the coming decade and your extrapolation along that. spending, particularly on the large health care programs as
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social security, will continue to rise with the share of the economy over time driven proportionally by the aging of our population and rising level of our beneficiaries and also due to other factors as well. second point to clarify is that an alternative to this scenario is not meant to be a projection of what you and your colleagues will do. it is a projection of what current policies would cost. we presume you would make some policy changes over the decade. an additional benchmark that you have found helpful in the past -- >> what is the basic some? we have had new things that have happened. so people can understand -- >> our basic projection follows current law. the tax provision scheduled to respire -- provision is scheduled to expire by the end of this year. an alternative scenario is the
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expiring tax provisions. current loss includes cuts to medicare patients by the end of the year. current law includes the sequester, and many members of congress have argued they would like to do something different instead of that. our alternative scenario takes a with a sequester. -- takes away the sequestered. an alternative scenario, total debt rises by 2 1/2 trillion dollars more over the next decade than current baseline projections. >> you ask what happens if debt rises and stays high. there are some costs that are quite predictable and other risks that are created. over time, not under the current
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economic conditions but the conditions we expect later in the decade of nearly full employment in the economy, at that point a large amount of debt will crowd out some private investment that would then raise wages and income. the higher the debt is the more that investment is likely to be crowded out. we have models to capture that and report soda -- and report those to you. there are some countries that have had very high levels of debt and have not communicated -- or not persuaded their potential lenders that they have a plan for getting the debt under control. currently our government is not at all in that position.
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currently treasury interest rates are extraordinarily low. our projection calls for a normalization of interest rates, as the economy's strength since and the federal reserve to stop pushing so hard to keep interest rates low. we have a normalization of interest rates in our basic protection. with debt high and rising, there is a greater risk that potential buyers of government debt will get spooked and will be unwilling to do so at the regular level of interest rates. if interest rates were a percentage point higher than we project over the entire decade, and the federal government interest cost would be 1.1 trillion dollars higher. if interest rates for a percentage point lower, payment would be 1.1 trillion dollars lower. given the large amount of debt the government has come a fairly small movements in interest
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rates can have fairly large effects on government spending. >> would you normalize rate assumptions? >> we are projecting short-term interest rates rise about 4% and longer-term 10-year treasury note rates rise to 5.25%. those rates are a little above adjusted interest rates over the past several decades, reflecting the effects of a higher level of debt relative to what we have experienced in the past decade. >> we are limiting ourselves to 10 minutes so i will be brief only to say that it seems we have this window that needs to be narrowed on us. as you mentioned, america is in a safe haven, the port in a storm. that gives us time. but if we fritter this time
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away, if we do not deal with the core problem then we will have lost this opportunity we had to get our house in order while we have low interest rates. the other problem, as we see it, is growth. if we keep chasing higher spending with higher taxes, we will sacrifice growth. the best way is to get people back to work in good jobs with good wages, paying taxes, and get spending under control. when we talk about taxes and tax reform, the polls are a part of tax reform. closing loopholes is as necessary to pay for ticket tax rates down to have -- to help businesses, to create jobs, to get people back to work. if we use to pull to chase
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higher spending than we are forgoing tax reform and missing our opportunity for economic growth. i just want to make that very clear for the record because people here rhetoric to the contrary. >> thank you, mr. chairman. first, just a little bit on the math. the chairman pointed out that while we will have 1.5 trillion dollars in cuts over the next 10 years as a result of the spending caps, there were other onetime spending measures. that includes a payroll tax cut which is probably the single biggest item in that. i think we should have faced that out rather than having gone cold turkey. the point is a big chunk of that number has to do with lost
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revenue from a payroll tax cut that was supported by the great majority in this body. as i said in my opening remarks, i think our overall objective in the short, medium, and long term is to expand the economy, grow jobs, and have a strong middle- class. it is absolutely true that especially as the economy recovers its you continue to have high deficits it will squeeze out that private investment and put upward pressure on interest rates. in order to make sure we have good long-term economic growth you have to have a good grasp the deficit. that brings his back to the question of how we deal with the deficit. as it was pointed out, you can have two categorical ways. you can say we are not going to have any revenues, just all cuts. and as you pointed out you can do it on all revenues and no cut. you cannot raise revenue enough
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realistically to cover all of those costs. but cutting means undermining important commitments that we have made when it comes to the retirement health and security of our seniors. let me get back to the sequestered issue because that is looming right now. in terms of the negative economic impact of the sequestered, this 0.6%, what does that translate to in terms of lost jobs? >> the sequester alone will reduce gdp growth by 0.6 percentage points, lowering the level of gdp by the end of the year. we think that would reduce the level of employment by the end of the year by about 750,000
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jobs. >> 750,000 jobs between now and the end of this calendar year, 2013? >> yes. >> that is a whole lot of jobs. we should be working overtime to prevent that kind of job loss. if you would replace the deficit reduction with that austerity program with a plan that accomplishes the same amount of deficit reduction spread over the 10 year period, you would not have that big hit on jobs? >> that is right. >> we have heard a lot about the impact as a result of defense cuts. the republican leader had it exactly right last september on the floor of the house when he said if we allow that sequestered take place unemployment would soar.
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it would set back congress on the economy. he cited an estimate that a sequester would cost 200,000 jobs in the state of virginia alone. that was for the full year. that should be the model going forward and that is the model we have applied to the sequestered. just to be clear, since there has been a lot of attention focused on the job lost because of defense cuts, the cuts in the non-defense, on a dollar to a dollar basis, does that result in the same amount of jobs lost? >> the effects of cuts in defense spending and non-defense spending is quite similar dollar to dollar. in some circumstances it could be small differences. basically you are right that the government is paying people to
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build battleships or paying people to build other sorts of equipment or structures, those will have comparable tax dollar for dollar on the economy output and jobs. >> i never understood the logic as to how cuts to defense somehow cost jobs but cuts to other government spending somehow do not cost jobs. obviously when you invest money to build roads and bridges and other transportation systems you are putting people to work doing things that are productive for our economy. there are grants being spent to find treatment in cures for lifesaving diseases. it would be absolutely counterproductive, in terms of our long-term competitors, to have those kind of cuts take place. on top of that this long-term negative impact of 750,000 jobs
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between now and the end of the year. let me say something about the tax reform. i am not sure if you have done a recent estimate in the amount of tax expenditures in the tax code. what is your most recent estimate? >> in last year's outlook, which was a logger document, we had extended discussion of tax expenditures. we have not updated that yet -- not updated at this year. they are working on one. tax expenditures amount to a very large amount of money. many economists agree that they are viewed as a form of government spending because they are directed at a particular people or entity or designed to subsidize particular activities
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very much to the way that government spending is directed at particular remedies for designs. it is a complement of spending of the federal government, even though it is recorded as loss of revenue on the revenue side of the budget. >> spending through the tax code by saying interest on certain policies we agree upon, that is revenue that will not come into the treasury to help produce -- to help reduce the deficit. the chairman pointed out that we passed a $600 billion tax increase focused on folks at the very high income scale. his goal was actually to achieve 1.2 trillion dollars revenue. we should do tax reform, but in addition to reducing rates which
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have a significant amount to debt reduction. the report would have a lot more revenue come in than the president has proposed. i want to make that clear to our colleagues. i would also point out that speaker boehner, during those discussions with the president, said he did not want to increase rates but he could raise $800 billion by closing tax loopholes and getting rid of these tax expenditures. those are still there. none of the actions we have taken eliminates those tax breaks and expenditures. if we agree those are just -- it seems to me we should be willing to help eliminate some of those expenditures for the purpose of reducing the deficit in a balanced way. just to be clear, what our colleagues to date have said is
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that they are not willing to do that. they are not willing to eliminate any tax expenditures for the purpose of reducing the deficit. we think that is important as part of a balanced plan going forward. the last point, i would say, is if you look at the chairman's chart, there is no doubt we have to deal with this issue. as you know if you can pass changes to the loss in this 10- year window that would have an important impact in the out years. arbitrarily trying to squeeze all of that into the 10-year window is not good economics. that is politics. i would hope that we go through this process and keep an eye on the point i raised in the beginning. what is the impact short-term,
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middle term, long term, on middle-class, and on jobs? >> i guess we disagree on that. thank you, mr. chairman. >> mr. tyrrell and uncut -- mr. director, welcome back to the committee. we appreciate your input. is it better to have a balanced budget or not? >> congressman, i guess that depends on what your values are. the reason cbo does not make recommendations about budget policy is that the course you and your colleagues choose depends not just on the analysis we provide but on your judgment. the level of debt that you described -- >> 87% under, i guess, your alternative fiscal scenario. i suspect you agree that 87% is not as wise as 76%.
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is that right? >> we certainly agree that higher debt has higher expected costs and higher risks than lower debt would have. >> and i would concur. i want to touch briefly on the the $600 billion increase in taxes. do you recall what the spending reductions were in that legislation? the net spending reductions. >> the cost estimate we produce is relative to current law, so our cost estimates show that legislation as a very large tax cut, not the tax increase that you have just described. there were only small changes in spending. i do not remember how they netted out. there was extra spending in medicare but cutbacks in other spending. the sequester was deferred. that was paid for partly, as you know, through other spending reductions -- >> minimal spending reductions in the bill.
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this balanced approach that our friends on the other side of the aisle is balanced until it is not, and that is what we saw with the fiscal cliff. i want to touch on revenue. your assessment is that revenue has returned essentially to the 2008 level or higher than the 10-year average -- is that accurate? >> i do not have the registry in front of me. >> i think that is correct. revenue of the federal government now has returned to higher than the 10-year average. that being the case, and if we look at the deficit in 2008 at about $450 million and the deficit in 2012 at $1.30 trillion with revenue returning essentially to 2008 levels, is it not true that the thing is driving -- the thing that is driving the deficit to a greater degree is not that the revenues are lower than they have been but that spending is higher than it has been? is that an accurate statement?
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>> certainly in dollar terms, you are right that spending is going up very sharply. the problem you and your colleagues face is the perspective of many americans who are now starting to retire, the fact that there are many more of them than there were beneficiaries 10 or 20 years ago. it appears to them as an excess in the benefits they are getting, but it turns out you take the level and multiplied it by a lot more people that the aggregate spending goes up, and that is the challenge you and your colleagues face. >> it is indeed, and we look forward to working through a budgetary process that will secure those programs as opposed to moving in the direction of essentially lopping off program -- lopping off funding for those programs. i want to touch again back on the 76%/87% -- your alternative fiscal scenario in the past has
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been more accurate compared to reality. is that a true statement? >> i suppose that is true. the biggest difference, as you know, between that and the base line had been the extension of the expiring tax provisions. congress chose about a month ago to extend most of those expiring tax provisions. our current base line looks more like our last alternative scenario than our final statement. >> then it is more likely we will be closer to 87% public debt held as opposed to 76%? >> if you and your colleagues let current policy stand, that would be the case. it will not is the issue you are debating -- if you will or not is the issue you are debating. >> when a fiscal or debt crisis occurs, what is the triggering mechanism? what happens that results in that, the in ability to borrow at an affordable rate, as you describe it? >> i think a loss of confidence
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in the government's ability to manage its affairs and to pay the interest on the debt makes potential investors more concerned and makes them expect higher risk premiums. >> which is not a predictable moment in time? >> that's right, congressman. >> thank you. >> thank you, and welcome to a new budget cycle. the really keen an important debates we are having for our country -- i want to thank you for being here and outlining where we are. you did point to some positive news. i appreciate that, the fact that we are in recovery, that you are seeing positive signs of economic growth in the housing sector, and he referred to the disagreement making it difficult to find a way to reduce deficit in a fair and balanced way that strengthens the middle class, the gross jobs, that does not
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upset the fragile economic recovery. we've seen economic growth. we saw the arguments at the end of last year that we saw contraction in the economy for the first time in -- three years, was it? of course, we believe that this is not just policy. there are very different economic theories about how we grow the economy, strength in the class -- strength in the middle class, and how we meet our obligations, not only for our children and our future, but the obligations we have talked about on this committee, and that is to our seniors. that is what i wanted to ask you about. one of the areas where we have seen again positive news this week -- we have seen slower growth in the cost of health care, both in the private sector and in the public sector.
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that is quite significant. when i came in here, we had double-digit growth in cost. over a decade, 100% increase or more. in medicare and medicaid, i think that some of us would contend we have seen these delivery system reforms and a very serious commitment we have made to really push the health care system to give us better value for our taxpayer dollar, to improve the quality of health care for our seniors, to deliver health care in a much more cost- efficient way and as a result, save taxpayer dollars and improve the quality of our seniors' health care. particularly given to regret for problems around health care -- those baby boomers -- it is serious business. we have seen other reports that have said we have seen very good reduction.
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a 3% growth rate is really significant when we have seen 10% a year. can you confirm that? i will also ask that as we move the way we pay physicians in this country, as we change the way we reimburse physicians under medicare, that we require them to pick a model that does save money and improve quality and outcomes for our seniors, in a way that has the potential cost savings and cost containment, not only in the public sector but also in the private sector. and i guess, let me first quickly emphasize the point you made about the effects of the retirement in the baby boom generation because the numbers are striking. we think that by 2023, there will be roughly 40% more beneficiaries of social security
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and medicare than there were last year. 40% more people roughly. that has a tremendous effect, obviously, on the overall cost of those programs. >> we made a commitment to those seniors. >> your point about health care cost growth is absolutely right. there has been a marked slowing in medicare part a that mostly pays for hospital care, part b, that pays for physicians, and part d, that pays for drugs. we and other analysts think that part of that is because of the recession and slow growth in income and loss of wealth that has reduced people's willingness to pay money for health care, but we think a significant part of it is in fact structural. the crucial question is if those structural changes are transient or if they will be entering. that is a topic we are giving a lot of thought to and talking with outside experts. i think the right way to summarize the consensus is that
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we do not know. >> if we were to pass legislation this year, which honestly, there has been serious and good discussion between democrats and republicans on dealing with innovative ways to pay physicians under medicare -- does that give you the tools to be able to get this to happen? this is the window it is going to happen and the direction you are moving in? >> i think there is widespread support for the idea we should be paying health-care providers in a different way than we are paying them today. i think widespread agreement that a shift in how we pay providers can improve both the quality of care and keep costs down. exactly what changes in federal law will lead to what particular outcome is a very uncertain business, and we look forward to continuing to work with you on that. >> thank you.
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large and persistent deficits like we have over the long term are a bad thing for economic growth, job creation, and potentially have the debt crisis rates that you discuss, correct? >> yes, congressman. >> but the solution to that, which is some kind of fiscal contraction, be it through tax increases or spending reduction, can cause a reduction in short- term economic growth and/or job creation? >> yes, exactly. >> so we are in a bit of a pickle. >> yes, congressman. >> the question is how we get out of it. in europe, greeks and spanish and italian waited too long and had to do a substantial fiscal contraction in a very short time, which results in extremely high unemployment and large contraction in the gdp -- is that correct? >> yes, but there were other factors at work as well. but the sharp fiscal austerity
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contracted their economies. >> if we fixed this fiscal crisis in the next two years or if we were forced to do it by the crisis, that would plunge the country into recession, unemployment would go up worse than it is today, badly? >> yes, congressman. >> so we do not want to do that, but if we ignore it or only want to deal with just a little bit of it and deficits go on as you say in the baseline or even the alternative scenario, we risk never getting to our potential growth and potentially have that debt crisis where a few years from now we would have to make that kind of overnight contraction? >> yes, congressman, that is a risk, absolutely. >> so it makes sense to try to solve this in not too short a time and not too long a time. i do not know if you feel comfortable answering this or not, but if two years is too
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short and 30 years is too long, somewhere in eight to 12 years, if it were done in an even approach, is that the thing that might be able to balance and get us out of this pickle with as little damage as possible and as much opportunity for growth? >> i really do not want to prescribe solutions, but i think you are absolutely right that the risk of waiting longer is that by running with a high level of debt to gdp or a rising level of debt to gdp, the cost builds up and the risks build up. in 2007, debt was 36% of gdp. by the end of this year, it will have risen to 76% of gdp. because of the actions taken in response, if we run at this higher level of debt and encounter another crisis, domestically and internationally, that room to expand the deficit will not be there. >> just a couple of other things
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in my final couple of minutes -- mr. van hollen talked about the sequester. if you were to replace the sequester with whatever -- just a similar amount that matches your for your with the sequester is of other spending cuts or tax increases -- and i addressed in the composition would have something to do with it, but if you do $100 billion of fiscal contraction, there is some negative impact on the economy, no matter where that fiscal contraction comes from. >> yes, i think that is right. you are right that the timing is critical for the economic effects. the composition could also matter depending on how you and your colleagues to it. >> but if we put it off, we are putting off the problems we have to deal with. if you look at home mortgage
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interest, charitable contribution, ira's, 41 k's other retirement plans and health care -- if you really wanted to make a big impact, you would have to go into those things, would you not? >> you are absolutely right. those are the largest components. how big of an impact one could make we have not assessed, but the single largest tax expenditure this last year relates to health care, principally the exclusion of health insurance from taxable income. the second largest involves pensions, and the third largest involves mortgage interest. >> thank you. >> thank you, mr. chairman. dr. elmendorf, thank you for coming before us again and opening up a pleasant season for the next two years. i think that in response to my
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brother from georgia, what he said before about how we have increased spending since 2008, i think we are all here to roll up our sleeves and find a long-term solution to the debt. but just as we know that increased revenue is not going to solve the entire problem by any stretch, neither can we cut our way out of our budget difficulties. when you look at what has happened in terms of budgets since 2009 -- january 2009 -- when there was an increase in spending -- we cannot just talk about that out of context. why was there an increase in
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spending? are we spending just to spend, or was this the government's response -- our response -- if you voted for it or not -- to a very serious problem in the united states of america? people out of work, health care costs going through the roof. how do we do it? if no one else is spending -- if we do not have private capital injected -- and that started before the end of 2008 -- then how do you try to provide an atmosphere so that there is investment into the economy? and we want private investment. we know the government cannot solve every problem. we understand that very, very well. but when you talk about a balanced budget, of course it is preferable, but are we to think that because we have this tremendous deficit problem going
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into 2009, that all we needed to do was cut across the board in view of the social and cultural things going on in this country, and by the way, much of the world -- are we to think that if we simply cut and slash, that everything will be fine? you have created a nemesis. you have created a situation where folks -- you want folks to think that you want to protect your tax dollar when you know very well that in 2009, we had tremendous unemployment, and if the government did not do anything, if there was no recovery -- we can point out where recovery helped and created jobs. what happened in the last quarter of last year? very interesting comparisons. if we had not come out of two wars -- we never paid for them.
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we never paid for the major tax cuts. we never paid for the prescription drug plan that we past eight years ago. there is a reason why we had to spend that money. if anyone is trying to imply here that if we simply stop spending the money -- isn't that wonderful? it is our money -- it is the taxpayers' money -- that we would be in better financial shape -- well, america did not buy that in the last election because they are a lot smarter than we think they are -- all of us, both sides of the aisle included. instead of trickle-down economics, which we had for eight years -- and we will go into how many jobs were created then and how many jobs have been created over the last four years -- instead of trickle-down economics, we've got a trickle of -- we got a trickle up.
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i prefer that the little guy had a shot and not wait for the big guys to drive this economy because they certainly flopped on their face in 2007 and 2008 when capital was not invested in this country. director elmendorf, seems to me that the most important way to achieve long-term deficit reduction is a balanced approach to revenue and spending cuts. that is what we keep on talking about. in fact, according to your report this month, the cbo expected deficit to shrink from 8.7% of gdp -- we do not want to " these things because it does not fit into our script -- we do not want to quote these things. >> that is your time. >> can he at least answer the question? >> we got a lot of people here. if we wait until the clock is set 0 to ask our questions, we
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will not get to these other members who are waiting patiently for their turn. >> your point is well taken, mr. chairman. then a doctor -- >> dr. elmendorf, in order to pay for spending, we tax it out or borrowed it now -- borrow it out and tax it later. >> the amount you tax now -- you either barack or you tax it if you are going to spend it. >> yes. >> government really cannot inject a dollar into the economy that is not first taken out of the same economy either by taxing now or borrowing now and taxing in future. >> under our current economic conditions, if the government borrows money, it is not taking it dollar out that would otherwise be invested. you can increase the total
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demand for goods and services in the economy and thereby -- >> i of the dollar is being borrowed by the government, presumably it is not there then to be borrowed by a consumer seeking to make consumer purchases or a home buyers seeking to re-enter the housing market or a small business seeking to expand jobs. >> i think that point is exactly right when the economy is at full employed. >> would you explain the impact of that? >> in a fully employed economy, then higher debt, as i mentioned, crowds out private investment and reduces incomes relative to what they would otherwise be. in an economy like what we have today, the effects are starkly different. in the economy we have today, we think that additional borrowing to support higher spending or tax cuts would provide a boost to the economy in the short term. certainly, if it is not paid
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down later, it will weigh on the economy, but in the short term, it will provide a boost to the economy. >> but you are borrowing a dollar from the same market that would otherwise be providing funds to businesses or home buyers, for example. it is the same dollar. the only question is if it is far more by the government to spend or by someone in the productive sector to spend. >> under current conditions, the demand for private borrowing is very low. there is not a conflict in the credit markets. that is why federal government interest rates are so low. and different conditions, there would be competition, but these conditions are unusual. >> i would suggest you talk to small business people or home buyers who are desperately trying to get loans and are telling us they cannot get them. tell us about the economic impact of spending -- pardon me, of taxes, rather. >> taxes have two kinds of
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effects. one is they take money that households would otherwise have been. the other is they can effect the incentives for people to work and save. in our macroeconomic modeling, we try to capture both of those. >> did your office not estimate that the tax increases that to the clinton-era rates on those earning $200,000 as individuals -- $250,000 as couples -- would cost about 200,000 jobs? >> that sounds roughly right. i do not remember the specifics. you are referring to a report on the fiscal clip from last fall. i do not remember the exact numbers. >> we are also told by your office that the sequester reductions in spending would affect about 0.6% of growth -- you said about 750,000 jobs -- because government would not be spending that money on creating government jobs. but as we just established,
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government does not inject a dollar into the economy that is not first taken out of the economy. i'm afraid we are getting to a situation where we are being told that tax increases are beat -- are bad for the economy, too much borrowing is bad for the economy, particularly in the future you are projecting, and spending cuts are bad for the economy, and that does not leave us with many options. >> the effects of fiscal policy on the economy are different under different economic circumstances. that is a widely held -- not universally held, but widely held -- view among economists, and that is the perspective we take. under current economic circumstances, when private demand for goods and services is low, additional government demand for the government's offering additional private demand can both increase the overall demand for goods and services and thus encourage businesses to hire more. under different economic circumstances of the sort we usually have in this country and we expect we will have again
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five or 10 years from now, then this competition you are describing between the government oppose the use of funds and the private sector's use of funds can become acute -- the government's use of funds and private sectors use of funds -- private-sector's use of funds can become acute. >> thank you. >> [inaudible] your budget analysis is very interesting. for years, we've had to listen to the republicans lighting the fire on cable tv about the temporary large deficits we have. we were told if since then- bowles was not enacted, a to be the end of the world as we know it -- if simpson-bowles was not enacted, it would be the end of the world as we know it. we had 35 months of increases, and the only places you see dips
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are when the republicans begin to play roulette with the budget, when they created chaos about if we would pay our bills internationally, or we have these big fights we have on the floor. the unemployment goes up because business does not have any confidence. they are not going to hire anybody, and it seems to me that what you said is that the long- term problems in this country really are about health-care costs, as was already pointed out. when i came to congress in 1988, we were talking about the big problem that was going to come in 2011 -- well, it is here. the baby boomers are now enrolling in medicare, and it is going to go from 40 million to 60 million. it has been absolutely predictable, and nobody wanted to deal with it until now. it is nothing new. it is not that we are suddenly
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having massive spending, except that we are honoring our commitments to the people in this country. it seems to me that the issue here is weather we will tear the safety net out, say to seniors, "we are not going to cover you. you are on your own. you and your family, go find out whatever you want to do." i want to talk a little bit about it -- medicare spending, as i understand it, is flat per person. is that correct? >> i do not have the precise numbers in front of me, but you are certainly right -- it has exploded very sharply in the past two years from what it was before. >> in my reading of your analysis, at least you give some credit to the fact that we enacted the affordable care act. is that correct? >> congressman, we have not attributed the slowdown to any particular factors like the affordable care act. what we've said is we think part
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of it is related to the recession. part of it is structural. the structural part could have a number of possible causes. one could be providers thinking about the current and incipient effects of the affordable care act, but they also are driven by pressures from private insurers. i think providers are driven by their own sense that they are not providing care in as efficient a way as possible, and we are not trying at this point -- we have tried to think through, but we have not said anything because we do not know about what factors are driving those structural changes. if we understood better what factors were driving them, we would understand the prognosis better as well. >> if you pass a law, even the threat of passing a law under the clinton administration -- suddenly, health care costs kind of leveled off. again, we see it when the congress acts that we basically see the flattening of costs.
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you cannot directly tied it -- tie it from point a to point b, but you know that the whole united states is watching what congress is doing, and when we do not pay our debt, they stop hiring -- that is clear. you could look right at the grass and trace it to the time when it happened and see how it happened. i think the thing that is most amazing about this is that the industry -- the medical industrial complex -- is actually responding because they know it is not sustainable. my question to you is -- the effect of throwing people off of medicare -- or raising -- let's raise the age to 67 or 70 before you can get on -- what would that affect? how would that affect the economy? do you have an idea? >> it depends a lot of what else is going on and exactly how that provision would be structured.
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we wrote a report early last year about the effects of raising the eligibility age for social security and for medicare, and we talked about the consequences. certainly, some people who do not go on medicare would end up on other federal health-care programs. some people we think would end up without insurance. some people would choose to work longer to maintain their employer-sponsored health insurance. there is a whole combination of responses that we think would occur. >> the real issue here is how we control health-care costs. >> thank you. that is a very and what -- >> that is a very important question, congressman. >> greetings. this will follow-up on our private conversation initially and maybe some of the points when i was out of the room with regards to interest rates. one number that i heard -- you were saying that we are at here now, basically there, projection over the 10-year, going up around three, so the interest
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rate of repayment of debt is going to increase during that time. the number you threw out two as was $1.10 trillion for a 1% increase. you basically factor that in to your projections. >> right, the increase in interest rates that we slow is the underlying feature of our projection of federal interest payments. >> right. one of the other uncertainties is the maturation date that the fed has on the securities going out, that it is converted between long and short. do you take that into consideration as well? in other words, one of the numbers i heard was that you look at a 3% increase, looking at around $140 billion increase in year one. that would only last for two or three years as the maturation date changes for the securities. you with me on that? >> you are right that our projections depend not just on
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the interest rate at that moment in time but with the federal government has issued win and when it is rolling over those maturing securities into new securities. >> i guess one of the multiple bottom line is we are going through the whole sequester issue, trying to save roughly $100,000,000,000.80000305175 dollars of interest payments, and it basically pales in comparison if interest rates go up just 1% -- trying to save roughly $100 million of interest payments, and it basically pales in comparison if interest rates go up just 1%. >> above and beyond the increase, i was suggesting that we have built into our projection, which is a return of interest rates to slightly above their historical average level -- further increases are certainly possible, but i just noticed -- i am just noting that the percentage change could
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certainly go up. >> chances of losses and the current outstanding portfolio could exceed 50%, which is not out of the norm, which would require that taxpayers have to bail out the fha going forward. the report shows from the fha that they are over leverage right now. they are at a leverage ratio of 400 to one, which makes bear stearns, lehman brothers, and the others pale in comparison. have you examined the report and the budgetary implications in your projections? >> let me say two things quickly. first, as you know, when you refer to a government bailout, there is no explicit action by the congress. it is simply the case that people do not pay back their mortgages, and when the fha is on the hook, taxpayers would have to pay that back. the second thing i would say is
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that as you know again, there's a few years of fha lending that has turned out particularly poorly in terms of delinquency and default rates. we have not done a separate projection of what a draw on the treasury might ultimately be. if there is a change, it would turn up as a credit we estimate in the budget, but we do not have a specific projection that i'm aware of -- it would turn up as a credit reestimate. we could take a closer look at it. i do not know that that is data we could get, but we could try. >> that would be very helpful to us as well. last question is with regard to medicare -- as you well know, there is a law in place that says when costs exceed revenues by 45%, something has to happen,
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right? the president has to issue a report on how to solve the problem, correct? >> yes. >> and so, has that ever been triggered? >> that threshold has been exceeded for a number of years -- was that triggered in 2009? >> i do not know the precise years, but i will take your word for it. >> what to believe 2010, 2010, 2011, in 2012? >> i would believe that. >> and have you ever scored the president's response? has the president ever provided a report, as required in the law? >> and not aware of any. >> so he has violated the law in that sense? >> i'm not a lawyer. there is a requirement for the proposal to be made. i'm not aware of proposals that have been made, but i might be unaware -- >> you would have scored it, we do not? >> it depends. we estimate the president's budget once a year, and otherwise, we estimate things
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that you and your colleagues bring to us. >> thank you. >> thank you very much, mr. chairman. first of all, let me just say it is an honor to serve on this committee, and i hope to work with this committee to create a useful road map for the american people, one that will create jobs, lift people out of poverty and into the middle class, grow our economy for everyone, and reduce the deficit. let me thank you, mr. director, for your testimony and for being here. our budget is not only a road map to fiscal responsibility, but it is also a moral document. it shines a light on what the priorities are of our government and who we are as a country. the nation's budget must reflect our values and raise enough revenue so that we can invest in our people and meet our nation's challenges head on. while our economy continues to slowly recover, we also must focus on lifting the millions of
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americans who are living in poverty up the economic ladder and into the middle class. so in addition to looking at policies that have strengthened the middle class, i will continue as a member of this committee to remind this committee that nearly 50 million people live in poverty. 16 million are children, and this is unacceptable. unless congress acts by march 1, the sequester will slash thousands of jobs, which we've heard earlier, and economic security of the middle class, but it will also push the poor and low-income individuals over the edge. it will eviscerate any gains our recovering economy has made in recent years. so there is no question that we need to prevent these cuts from taking place, and we must do so in a way that protect investments that create and continue this economic growth. i think we need to take a hard
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look at the loopholes and tax expenditures that allow some of the wealthiest individuals and businesses to not pay their fair share, but also, we need to look at the ongoing waste, fraud, and abuse going on over at the pentagon. i cannot for the life of me figure out how we can budget when the single largest discretionary item on our budget cannot be audited. we need the pentagon to pass an audit so we can get to know where the money is and where our tax dollars are going and adequately set priorities. let me just ask you about the cbo report on the american recovery and reinvestment act. i would like to ask you -- can you explain how our governments targeted investment in the american people and in our nation's critical infrastructure -- how that created jobs and how it helped to begin to grow the economy? and also, if we invested in a
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program that provided coordinated benefits in social services that was the the long- term economic stability and income -- what income would that be? what impact would that have in terms of our economic growth? >> congresswoman, as you know, we had an estimated -- we have estimated consistently for the past four years that the recovery act, taking effect at the time it did with the economic circumstances the country faced, increased output and jobs relative to what would have happened in the absence of the recovery act, and we think it did that by some additional direct government purchases, by giving money to state and local governments, that they then used to purchase goods and services or to provide benefits, and by cutting taxes to americans that let them and then spend more money themselves -- that let them then spend more money themselves.
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that filled in part of the great shortfall in demand that had come about in the wake of the bursting of the housing bubble in the financial crisis, so we think the past output and employment has been higher than what it would have been otherwise, and we think that this year, with an economy stronger but not that strong yet, that that easing of fiscal policy, such as the deferral of the sequester would boost output and employment this year relative to what would occur under current law. you also asked about long-term effects of policy. i think those effects are ones we worry about but are harder to know for sure. if the government can strengthen people's skills, help them have a better education and more training, that should make them more productive over time, but the overall economic effects will also depend on how the government does that and where
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the money comes from to do it. so spending $1 in a certain place can be good for the economy, but in the longer run, it does come out of something else. think of the overall economic effect, we need to think of what it is coming out of. >> thank you. the gentleman from oklahoma? >> thank you, mr. chairman. i want to continue on that same line of conversation about the long-term impact. is there an economic benefit to balancing our budget? not adding two additional, let's say, a principal year after year? is there a benefit to our economic development as a nation? >> yes, a smaller deficit, all the way down to zero, can be better for the economy in the medium and long run than a large deficit, but the economic effect in the long run depends on how you do it. >> right, i understand that. that has to be done in a way
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that is judicious and that makes sense for the economy itself. i interact with a lot of families that have a challenge of understanding this as they walk through the document, and they want to know how it applies to their individual family. can you help bring that down to the individual family? what is the effect of a $16.50 trillion debt on a family, and what is the effect on how that grows, let's say -- you mentioned $7 trillion over the next 10 years. what effect does that have on an individual family? i know you cannot in the family and the address -- i get that, but the overall impact on a family. >> over the next few years with a weak economy, the government borrowing in order to keep taxes lower and spending higher helps the average family by producing more demand for goods and thus increasing the chance they will be employed and get paid more, but as you go into the second half of the coming decade when
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we think people will mostly be back to work, then the government's borrowing is competing with the borrowing that households want to do for their mortgage borrowing. it competes for the borrowing that the businesses they work for may be trying to do. at that point, the competition makes it harder for businesses to invest. that will tend to limit the extra equipment that workers have to work with, and because of that, it will tend to lower their wages and family incomes relative to what would have happened if instead the government had not been borrowing so much. >> right, and that is not to me to just shut off and say for the next five years, we are going to have this sugar high and then balance immediately and correct that -- that is something that has to be corrected when? >> for balancing immediately, it would have the consequences we discussed. the exact timing is a matter of trade off. we have about this before. the sooner congress acts, the lower the level of debt is likely to be five or 10 years from now.
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on the other hand, the sooner congress acts, the greater the contraction would be -- >> do you like it right now or five years from now or six years from now? >> yes, exactly. >> you are saying on the current path, we cannot postpone the pain, but it is coming? >> i think it is coming, yes. >> let me ask you about the size of the interest. we talk a lot about the interest rates and such. when you talk about another $7 trillion being added to the debt, what we're talking about in terms of the actual dollar size of an interest payment? right now, we are paying around -- give or take a few billion -- around $300 billion a year in interest payments. what is your best guess on, getting out to the end of the 10-year window, what we are paying in interest? >> the government would spend $224 billion on interest payments in our projection. we expect it would grow to $857
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billion in 2023. that is an increase of a share of gdp from about 1.4% to 3.3%, or almost two more percentage points. >> current path with the sgr cuts and everything else, by the end of the next decade, we are paying $857 billion just in interest? >> yes, just in that single year. >> how many things do we have in our budget that are $857 billion? >> not very many, congressman. this would be one of the largest components of federal spending. you can see that by tutsi -- 2023, the major health care programs as a group and social security as a group, net interest payments would be higher than defense spending, higher than all non-defense discretionary spending, higher than a mandatory spending, all
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the benefit programs apart from social security. >> thank you. i yield back. >> thank you. the gentleman from rhode island. >> thank you. i want to thank the chairman and our ranking member for the warm welcome, and i look forward to serving on this committee. i have not heard from an economist or read the thinking from an economist who has not said that we have to approach this serious economic challenge by balance of reducing spending and generating new revenues, and i think there is really no question that the president's articulation of that model is something that we have to do, so we do not look to it in a way that is properly timed, but also which is at the same time making the investments that are necessary to grow our economy. clearly, we have to reduce spending, so we have to make choices about what we invest in. i wonder if you would share some thoughts with us in terms of getting the most bang for our
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buck. what of the kinds of policies that when we are engaged in spending we are likely to produce the greatest economic growth and the greatest help to our economy? because not all spending is the same period in that regard in particular, i'm interested to know your thoughts about infrastructure spending, really rebuilding the crumbling infrastructure of our economy in the old-fashioned wpa way, which leaves behind assets which contribute to economic growth and our ability to move goods and services to compete with global economy and at the same time, contributes to people's work immediately but also leaves behind a valuable asset? secondly, if you would speak to a proposal that the president spoke about last night, which is a proposal to allow millions of american homeowners to refinance their homes at a lower interest rate, market rate today, which i would suspect,
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not being an economist, would produce on average -- i think they said $1,200 a year in new spending opportunities for families, provide substantial economic relief, help stabilize the housing market, but i also expect it would be a huge economic generator in terms of job creation. if you could speak to those issues. >> yes, congressman. when we talk about bang for the but, sometimes we talk about that in a short term context and sometimes in a medium or long- term context, and the answers can be different. in the short term, what matters most is how much of the lost dollar taxes is spent and how quickly. giving more money to spending increases or tax cuts to lower income people can more than for higher-income people because they spend a larger amount of the difference. in essence, instructor can have a high bank for the book
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ultimately, but it might not be as large right now because of the project take a while to get started. in the medium and long-term, a infrastructure investments, if devoted to a high return project, as he can in fact have a big effect -- it can in fact have a big effect. impact can be viewed as investment either i of physical structures or in people in the form of education and training. not all that money is spent well, but some of it is clearly spent for things that the private-sector would not otherwise provide. some of those projects than can have high rates of return and can boost the economy in significant ways over time. i think the one concern that people have raised about the cutbacks in discretionary spending as a share of gdp that are in place under the sequester, but even under the original cast, people have expressed concern that that could end up limiting the investment the federal government does -- of course, it
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is hard to know for sure because you and your colleagues have not made those specific choices yet. on helping households to refinance in the way the president discussed last night, i do not know precisely what his proposal is -- we will see that when he releases his budget -- but we have in the past that analysis of different ways of encouraging more refinancing. we think that could have a positive effect on the economy. in addition to helping those households, the overall effect depends crucially on how many households in the refinancing, it depends crucially on how to program is designed, lou is eligible, with the incentives are for households and for the lenders to do something different than they are doing under current law. the effects in aggregate can vary a lot, but dollar for dollar, it can be effective, as we reported about a year or so ago. >> when you set it depends on the amount, obviously, the more americans who are able to take advantage of it, there's an easy program to administer americans and i to have a greater and more
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positive impact. >> yes, exactly. >> thank you. the gentle lady from tennessee. >> thank you, and thank you, dr. elmendorf, for being here today. this report does certainly bring a lot of concerns about where we are going and the huge challenges that we will expect going down the road. as i was reading through here, i made notes where i see a lot of things are unsustainable. social security is unsustainable. without reform, it will go bankrupt in 2033. medicare is unsustainable. social security disability insurance -- which we do not talk very much about, and i think that is really a very important topic that i would love to see either this committee or some other committee take a look at because i got concerned about this last year when i started reading about how it will go
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bankrupt in 2016. a big concern. then on the education site -- pell grants. $1 million shortfall in fiscal year 2015. then annual shortfalls of $5 billion or more from fiscal year 2016 through 2023. all of these programs as we are looking at them -- it is very scary to see that they will go bankrupt unless we have some form of reform. let me now turn to look at the health care issue because cbo sites that rising health-care costs are the leading driver of our debts and deficits. the federal exchange subsidies loaned are expected to cost $1.20 trillion, while the medicaid expenses are expected to reach $638 billion. in knowing all this, will this increase in spending -- well, first of all, the affordable act or obamacare adds another trillion dollars in new health care entitlement spending, so here we go again -- more health
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care entitlement spending -- but will this increase in spending with the medicaid expansions and the new exchange subsidies, reduce health-care costs growth as we look at the growth down the road? >> congresswoman, the affordable care act, as you know, had a number of different pieces with different sorts of effects. the expansion of insurance coverage we now estimate will cost $1.30 trillion over the 2013 through 20203 period -- 2023 period. >> let me interrupt you to make sure i understand -- this is 14 $3 trillion more than what was anticipated in previous out of the program? is that correct? >> no, congresswoman, i'm saying the cost of the expansion relative to a world that did not have that expansion. we've made many changes to our projection of the cost of the
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affordable care act of expansion, but they have netted out very little changed on balance for any given period of years. our estimates through 2019 are slightly below what they were when we first estimated the effects of that expansion three years ago. as one moves the budget would go further along, though, then, of course, one has larger numbers for this expansion and really almost all existing federal programs and tax revenue because the economy is growing over time. this particular part of the law raises federal costs in order to subsidize health insurance for people in particular ways. the law also included changes to medicare that have the effect of bringing down the growth rate of medicare spending over time. taking those pieces together, we think the law has increased the federal government posted budgetary commitment to health care in the long run.
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ultimately, the coverage expansions outweigh the medicare savings. the law as a whole includes changes in tax provisions. as a whole, we think it is a small deficit reducer, but the government cozy commitment to health care is increased because of the affordable care act -- the government's commitment to health care is increased because of the affordable care act. how those medicare changes will affect the growth of medicare spending we have made our best estimate of, but it is an uncertain business. if this changes in medicare would spill over to the private sector we do not know either. we have not offered a view -- and we do not do estimates of total national health insurance expenditures. we try to focus what we have done and what we have said to the federal budgetary effects. >> and yet, all of this -- and i brought the chart up that you were actually referencing to show that the major health-care programs are the greatest amount of money that is spent in any particular category, and we are showing that it does grow. it does not come down and level
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out. it continues to grow. yet, despite this -- this is the point i want to make at the end of the day -- despite this, we know there will be people out there -- more people that will be uninsured than previously expected because there are a lot of dynamics that are also occurring here that will cause that reaction. >> the gentle lady time is expired -- the gentle lady's time is expired. >> we expect the law will greatly reduce the number of uninsured americans relative to without that law. >> apologies to the gentle lady from florida for not recognizing her in order. >> thank you, mr. chairman, and thank you, dr. elmendorf, for being here today and sharing your economic outlook. i think there are positive signs that should not be overlooked that our economy is growing and adding jobs. that is consistent with what i have seen back home in florida.
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construction work and more cranes' popping up across town. housing prices are up, so i guess that is pretty good news if you are a seller. we have seen a significant drop in unemployment. the tourism industry has rebounded quite strongly after the bp disaster. if you are fortunate enough to have money in the stock market the past few years, you have done very well. last year, i ask you if we had more people working across america, with our debt and deficit situation be largely improved. you said yes, and i assume you still believe this is the case. >> yes. >> it seems like we still have significant headwinds to getting past that 7.5% unemployment rate. in your earlier testimony, you said you do not see great improvement there in the near term. talk about the headwinds to
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greater employment across the economy. especially, what is in the control of the congress? what are the current policies that are in place that prevent us from lowering that unemployment rate? >> congresswoman, i think you describe well and number of the factors that we see, underlying factors leading to economic growth, but as we have said, we think that the remaining parts of what had been the fiscal cliff a few months ago -- the remaining parts are still a substantial damage to economic growth this year. one of the things that congress might do to boost economic growth this year is to not let that fiscal tightening take effect. of course, as you know -- yes, there are a number of pieces of that. one crucial piece is the sequestered. we think that if congress were to not have the sequester, that would strengthen output this year and would lead to about
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750,000 more jobs in the fourth quarter. at the same time, of course, as you know, if there are not offsetting changes made >> that is what i am hearing from folks at home. if we reduce infrastructure, they anticipate cutbacks in private businesses especially, our large research university which relies on science and medical research there. very significant damage to what they are doing. the loss of jobs in our ninth largest school district in the country, at a large air force base, civilian workforce projections. time is short. we want to address the debt and deficit.
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let's not do this to ourselves. let's not self inflict a wound that will set us back further, digg is in deeper on long-term deficit and debt reduction. i think this is a warning sign. we have got to work together and replace the sequester. that does not mean we are going to shirk our responsibilities to address the long-term debt, the median debt. but if we are going to be stuck with this 7.5% unemployment rate, that is not sustainable. dr., are there other policies that could help us that are within control of the congress to create more jobs? >> i think there are a number of changes in fiscal policy. higher spending or lower taxes
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than there are under current law. if than a few reports in the past two years trying to evaluate -- we have than a few reports in the past two years trying to evaluate bang for the buck. >> did you also mention immigration in your outlook? >> we do not mention it in the outlook. we have done other work on immigration. more immigration can be a positive force for the economy. those reforms would not take place quickly enough to provide a big boost to the economy this year and next year. oosts, mayshort-term burs be other changes could be made as well. >> thank you for joining us. let's talk about a different
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subject. when you look at the president 's budget from last year, can you tell me when that balanced? >> it never reached a balanced budget. >> would you say that the spending and revenue profile in that budget was one that would help create a sustainable economy? >> congressman, we think the economy would be sustained. we did an analysis of the economic effects of that budget. i do not remember the precise numbers. as i have said on many occasions, a path that left government debt -- >> by his own admission, said that debt down to a two-year window will reach unsustainable levels and the economy --
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vis-à-vis having an $85 billion cut? >> that would depend on the nature of the tax increase. >> let's suppose that it is done through a tax rate increase. >> is still depends whose tax rates are cut. >> the top 1%. >> if the sequester were replaced by an equivalent dollar amount, that would be an improvement for the economy because we think that propensity to spend of high income people would be smaller dollar for dollar than would be the spending that would arise. >> the lady at the dry cleaning
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store when she has her taxes increased, is she going to hire more people and go forward with her plans she had before the tax increase? >> more people would come in for dry cleaning if they the people working for the government or working with government contracts that would be increased by taking away the sequester. i think that is the effect we have in mind, what businesses are most concerned about now is weak demand for their products. >> under that line of thinking, you raise the taxes 100% for high income people and spend all their money on government contracts. >> congressman -- >> that was rhetorical more than anything. how do you gauge the strength of this recovery over the last four years versus other economic
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recoveries post world war roman to -- post-world war ii? you can go through 1993 if you would like to. >> this is been a week to recover than we had in the early 1980's. -- weaker recovery than we had in the early 1980's. what was the 10-year cost of the affordable care act? >> the cost of the coverage expansion may be what you are referring to over the 10-year window at the time. i do not know the number offhand. we think the number would be smaller than a little bit than what we thought at the time. the budget window, the 10 years we provide projections for, has moved out into 2023.
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>> switching subjects for a minute, does the cbo look at unfunded obligations like the actuarial obligations of social security, medicare, medicaid? >> yes. in our long-term budget outlook, we include the cost of those programs and we include comments on the social security trust fund and the medicare hospital insurance trust fund. >> do you say, that is what the net unfunded obligation is for social security today? >> yes. >> do you have the numbers off the top of your head? >> i don't. but it is substantial. >> tens of trillions of dollars between social security and medicare, correct? >> think that is right. time hasntleman's
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expired. the gentleman from new york. >> think you, mr. chairman. he were asked whether this is a robust or weaker recovery -- you were asked whether this is a robust or weaker recovery. you can provide it was a weaker recovery, right? >> correct. >> in 2008, this country confronted the worst collapse and crisis experienced in history of the republic republic with the exception of the great depression? >> that is correct. >> the economy since 2009 under this administration is moving in the right direction based on any reasonable objective, economic measure, would that be correct? >> gdp has been growing since summer of that year. >> 6 million private sector jobs have been created over the last several years. is that correct? >> i think so, congressman.
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it depends the point at which you start that tally. >> 500,000 manufacturing jobs have been created? >> that may be. i do not know that offhand. >> to unemployment rate is at or near its lowest level in the last four years? >> yes, congressman. >> home prices are rising at the fastest rate in the last six years? >> yes, congressman. >> home purchases are up 50% at this point in time? >> they are rising. >> we reduced the deficit by $2.5 trillion in the last several years? >> we do not try to do a calculation like that. we have not done a calculation ourselves? >> -- ourselves. >> clearly, the economy is moving in the right direction. the question has been ousted a few times today if there is any economic benefit -- raised a few
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times today if there is any economic benefit to stimulating economic growth in the country at this time. >> yes, there is. the ultimate choice depends on people's judgments, your judgments on behalf of your constituents as to what you think the government should and should not be doing. we think that cuts in taxes or increases in spending that put money into people's hands where it is spent quickly and provide a crucial boost to the demand for business services and encourage businesses to hire. >> you indicated that the best way to increase consumer demand is to make sure that we increasing amount of money that is placed into the hands of low income or modest americans, is that right? >> in terms of bang for the buck, low income americans tend to spread larger share of money
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that they get. >> is it reasonable to conclude that an increase in the minimum wage that was proposed recently by the president has been advocated by others, which would therefore place a greater degree of money in the hands of low income or modest income new yorkers would lead to an increase in consumer demand and be good for the economy? >> we have not studied a particular increase in the minimum wage. there are various specs at work. some people would get paid more, which they could then spend and would presumably spend. also true, we think there would probably be a small reduction in employment because the cost of workers would go up. we have not try to work through those affects or others. it also depends how much minimum wage is increased and how the increase compares with what is the current minimum wage in many states. in many states, there is a different matte minimum wage.
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>> we would lose 750,000 jobs in sequester? >> taking away the sequester would have a noticeable effect in our judgment on output and jobs over the rest of this year. >> give mentioned a loss of confidence in the government's ability to manage its affairs could trigger a fiscal crisis where our ability to borrow is reduced? >> that is right. >> would it be reasonable, confronting a fiscal cliff in january, potential debt ceiling default in march, sequestration, or ceiling default in february, sequestration in march, government shut down in april, another potential debt ceiling in may, could shake the confidence of some investors in our ability to deal with our
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responsibilities? >> yes. we think the crisis mode of fiscal policy over the last few years is reducing people's confidence. how big of an effect that is, we don't know. >> the gentleman's time has expired. >> i think by anyone's objective measure in this town or country, we would consider you a smart man and a good economist, right? >> thank you. >> it befuddles me, it strikes me that some of us want to spee chify other than uses precious time to engage you in questioning. -- use this precious time to engage you in questioning. i will try to continue on in that regard. speaking of speechifying, we
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heard it is impossible to get ourselves out of this debt situation by spending cuts alone. i want to understand if i am correct that the cbo projects that revenue will double from 2012 level 25 point sort -- to 5.4 trillion? >> yes. >> according to your report, revenues have averaged under 18% of the economy in recent history. do you project under current law that revenue will rise to over 19%? >> yes. >> isn't that above historic average? >> yes. >> you wrote a letter that estimated that the president's affordable care act will increase revenues by one dollars
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trillion -- $1 trillion? >> yes. >> why? >> the law included a number of changes in tax rules. >> i think most people are focused on the tax increases that hit higher income taxpayers. but the payroll tax holiday expired as part of the fiscal cliff deal? >> yes. >> when you talk about in your open remarks, the public debt was 76% of her gross mystic product. the value of goods and services in this whole country generated in a year. that is not the whole picture, right? go to the definition of public debt and why i think it might be higher than that if you include the social security trust fund.
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>> there is also a substantial amount of government debt that is held by other governments accounts. the most prominent of which, the largest of this is the social security trust fund. that debt is honest to goodness government debt backed by the and credit of the government. we do not included in the debt measure that we focused on because we and most analysts look at the government as a unified whole. we capture the future obligations of those programs under current law and the way we do our projections of spending. when we look at the debt, we look at the debt as the government owes to outside of the government. >> so when the social security has an iou, that is what you count at that time? >>) we produce projections of
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gross debt. >> if i wanted to include social security trust fund in my remarks, what would be the debt to gdp ratio? >> i actually don't know that. >> would it be over 100%? >> that is possible. >> take in this vein. -- if i was taking your credit card application and under your occupation, would it be possible for you to tell me that you are an economist? >> yes. >> which school do you prefer and why are the other one is inferior?
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>> the consensus in the economics profession is that what people think of the output and employment depends on the demand for business services. it answers important questions about what will happen in the economy when unemployment is very high. consensus also thinks that over the medium and long-term, when unemployment is not so high, what we think of as mere classical economics is a better guide to what happens in the economy. >> you have got to stop the spending at some point? >> i don't know. >> my time has expired. >> the gentleman from wisconsin. >> thank you. it is a pleasure to be on the committee, especially somebody from wisconsin. mr. ryan and i sure a county. we have neighboring districts. -- share a country. we have neighboring districts. growing the economy, how can we
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create more jobs, that is the best way to get out of the deficit situation. especially before being here, watching the news, it seems like all they ever talk about is deficit reduction as the economic plan is if congress can't walk and chew gum. i think we can do both. part of that is, how we help grow the economy to create those jobs. when i was on our joint committee on finance back home, the legislature -- i used to be the chair of the committee. we had to approve every stimulus dollar that came through wisconsin that come from congress. i heard from small business owners who benefited from it. we had the roadbuilding and vertical construction industries, not your most liberal entities.they put out a report saying that 54,000 jobs were saved or created just in wisconsin thanks to the stimulus dollars and other things we did in the legislature.
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i look at what the president said about investing back again. i saw a release from speaker boehner yesterday. he said in his release tonight he offered them a little than the same stimulus policies that have failed to fix our economy and put americans back to work. wisconsin is a unique place good values.those of us who are from there is verare very proud to bm there. we have common sense, midwestern values. our experience was very different from the comment. i believe the cbo has done a report on the effects. is it unique to wisconsin or total job increases across the country because of those investments because of those-- because of those investments? >> there were more jobs and more output produced because of the
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recovery act. >> what kind of number of job? >> it varies because the spending and the tax reductions from the recovery act have varied. at the peak affect of the act, in 2010 and 2011, there were between half a million and 3.5 5 million.-- 3.5 million jobs. >> were there additional jobs since then since the peak period? >> there continued to be slightly more employment. most of the money from spending side and tax cut that has been spent. the effects are dwindling. >> it reduced the unemployment rate during that time.>> yes, congressman. >> how about the affect on economic growth? >> it boosted economic growth in 2009 and 2010 by considerable extent and brought down the unemployment rate in 2010 and 2011. >> as we look at what we are
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talking about, so often people talk about raising taxes or cutting spending. those are the only alternatives. maybe in sometimes in washington, those are that only ones people look at. for those of us who come from the heartland, i have had a small business since i have had hair and it was dark. i come from a different perspective. it does seem there is another way. if we can increase people getting to work in getting jobs and if they are paying taxes, that trajectory we saw that spending is the problem on the chart, we could close up that trajectory by bringing in real revenue without raising taxes despite having more people becoming taxpayers.-- just by having more people becoming taxpayers. essment?a fiar asair ass >> you are right that if more people worked and earned more money, that could have a substantial positive effect on the budget. the question is what policies will the congress and act and what would be the cost of the policies?
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>> when there is a dollar expenditure to do it, if i invested something, you have a cost to do that, but i would make a profit ultimately. there may be a 40% cost. you can still have a net gain. having that investment, and it creates jobs, can help close that trajectory. >> it is possible. if the government invests in something even if the project has a high return for the economy as whole, the government will only collect a small share. finding projects that would pay for themselves by the federal government i would not rule out. >> the gentleman from georgia. >> thank you, mr. chairman. i am proud to have a georgian sitting as vice chairmen of the committee this cycle here.
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it is those commonsense georgia values that give me great hope for this institution. congratulations to you. we want to talk about the common ground with wisconsin. rhode island has great public works programs. i want to read from fdr's state of the union speech in 1935 when he said, i am not willing that the vitality of our people be further sapped by giving of cash or of market baskets. we must preserve not only the bodies of the unemployed from destitutions, but also their self-respect, self-reliance, their courage, and their determination. he called the payments a subtle destroyer of the american spirit. i would hope as we talk about revenues and refundable tax credits as being these cash payments, anything that we can do to work together to redirect those cash payments into those real jobs that provide real benefits to the human spirit,
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not just to the pocketbook. i look forward to working together on. thinking about my georgia upbringings, i want you to help me with some things. i heard discussion about we cannot get a balanced budget just by cutting spending. there has to be a revenue compartment.component. -- component. my friend nfrom from indiana pod out that revenue will double over the next 10 years under your projection. for the revenue component -- if we do nothing more, we will double revenues to the federal government over the next 10 years.>> yes, congressman. >> think about the cutting of the spending over the next 10 years. if we do nothing, how much was spending fall below current levels? >> in dollar terms, we expect the spending at the end of the decade will be higher than spending now. >> what if we did it as a percent of the economy to adjust
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for inflation? how much lower would spending be in ten years? >> the project outlays in 2023 will be 22.9%. last year, they were 22.8%. >> over the next ten years, they will not go down either? >> there is a dip then an increase. >> taxes will double over the next 10 years in real dollar terms. spending will not decline over the next 10 years either in real dollar terms or not real dollar terms.-- nominal dollar terms. >> they will be roughly 40% up more beneficiaries a decade from now. that is a critical factor driving the numbers. >> when you have serious people looking at these issues, no one is talking about cutting spending. we are arguing about how much more we will increase spending. are we going to increase it more
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because there are folks out there we have to keep commitments to?>> i cannot tell you how much i appreciate the work you do. the best part of my job is that smart people are willing to invest time in me smarter.-- me to make me smarter. i don't understand -- you mentioned that the alternative fiscal scenario assumes the sequester does not go into affect. does the baseline assume that the war in iraq goes to an end? does it assume that the sandy supplemental spending was a one- time effect? >> no. our projections of discretionary spending have never been about the cost of doing particular programs. there have always been extrapolations of the funding
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congress has provided.with one exception now nof the caof the n most discretionary spending. current funding for overseas wars and for hurricane sandy, we have extrapolated those with inflation the way we have traditionally done. >> why is that? we have done an alternative scenario because some members suggest something may happen. we have baked into the baseline 10 years of sandy aid, which will never happen. what is the reason for that? >> our table of alternative policies includes numbers that allow you and your colleagues to subtract those particular provisions to construct your own projections of the budget balance. the reason we do those is somewhat different from the positions in the alternative scenario. -- provisions in the
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alternative scenario. there are permanent features of law that the congress has deferred or extended taking effect. discretionary spending has not been about a particular program. we think that providing the level of care people now get to the people who are now eligible will be more expensive 10 years from now. >> other storms and wars may come. we try not to judge what the level of discretionary spending you would like to have in the future. >> it is an honor to serve with you on this committee. thank you for your testimony. i have a pretty quick question. we have spent most of our time today discussing the deficit, our debt, and the healthcare costs that are the driver of the future expenditures. i wanted to ask you, if you could please explain the extent
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to which social security contributes to the deficit and the public debt that we saw illustrated on the chart. if you assume that we should be focused like a laser beam on bringing the deficit down so we can get our debt under control, would you agree that the discussion of reducing social security costs is a red herring? >> starting a few years ago and continuing into the future, the social security benefits that are being paid out exceed the social security tax revenues that are being collected. the social security trust fund received interest payments on the debt it holds. social security benefits are greater than the tax revenue, a little less than the tax revenue plus the interest payments. on a unified budget basis, where the interest payments from one part of the government to another washout, social security benefits and taxes are increasing the budget deficit.
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if you look at our projections out a dozen years or so, the benefits will exceed the tax revenues as the interest-- plus the interest payments that will be paid in so the trust fund will be suffering annual deficits. >> at what point does social security begin to contribute to the deficit? >> on the unified budget basis, taking account of just the tax revenues and the benefits, it is contributing to the deficit now. if you look at just the balance in the social security trust fund, the annual balance is positive but will be negative and a half a dozen years. it is changing quickly.
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i do have the number. we think that by 2021, the old age and survivors' insurance trust fund will have an annual deficit. the disability trust fund is in deficit. the overall social security trust funds will be running annual deficits beginning in 2017. >> i believe i have been overlooked. how many republicans have we taken? >> we have gone back and forth, republican, democrat. >> i am sorry. >> thank you, dr., for being
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here. i want to go back to my colleagues question on social security. the cbo basement shows that-- baseline shows that social security will want a cash deficit of $1.3 trillion over the next 10 years. is that true? >> that may be. i do not have the number in front of me. >> going back to some of the discussions that have occurred. i have been a business been most of my life.-- man most of my life. i've only been here a few years. when i look at the business of the federal government as to how it is going and how my current business is ran back home, i would be scared of the trajectory and the direction we are going.
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continuing under the current policies is not sustainable. is that correct? >> yes, congressman. >> someone talked about jobs. net jobs created over than last four years, is a negative? >> i do not have the number. >> let us go back to tax rates. as a business owner, when my tax rates increased, i was concerned i would not employ more people. -- and would not employ more people. if i did not have any predictability of what the rates would be, i did not do much as far as the future. do you have any correlation to the raise in marginal rates and how it affects the economy? >> when we model the effects of big changes in fiscal policies, our models include the effect of changes in tax rates on people'' work effort and savings. we did an reexamination of the us and the amount of response and made some adjustments and what we do and published
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reports.-- in what we do and published reports. it is the case, in our view of the research literature, that higher tax rates will tend to discourage work effort and saving. >> as we talked about earlier, if we add taxes and do a balanced approach, and marginal tax rates go up, that will also slow the economy. >> that is right. the question is, what else is going on in the federal budget? >> let us go back to the fiscal cliff. when we passed the fiscal cliff here recently, do you think people moved their taxable income? was there a shift and a change in what they were going to do knowing rates were going up? >> yes, corporations and individuals behaved differently the last part of last year based on their uncertainty with what
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would happen with the fiscal cliff. >> we will see a jump up in receipts this year because of that. >> federal receipts were strong in january. that is part of the story. it is also be end of the-- the end of the temporary reduction of the payroll tax and other factors. >> let us talk about capital gains. capital gains rates could lead in 2012, jct and the cbo higher tax rates on capital gains could lead to and level of inefficiency and lower capital gains rates could encourage investment. do you agree? >> yes. >> do you agree an increase in the capital gains tax could increase the long-term productivity? >> no, we do not think an increase on the tax on capital will boost investment on output in the future.
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if that money is used to reduce borrowing, that has a positive effect. >> my colleague talked about revenues doubling over the next 10 years and spending going up significantly. do you have an idea of how much spending will go up over the next 10 years? >> i do not have the number calculated. spending this year will be $3.5 trillion and in 2023, it will be pushing $6 trillion. i do not know the percentage change. >> i yield back. >> the gentle lady from wisconsin. >> thank you so much. thank you form, dr., appearing today. i have seen how you have done a delicate dance all morning as members has attempted to get you to agree with their approach
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about how to reduce the deficit, about how to grow the economy, what is more important. is this tax policy better or worse? i appreciate your indulgence and patience. what i learned from you today is that ultimately, we make the decisions by what happens. all things are not equal. for example, the american taxpayer relief act of 2012, the fiscal cliff thing we did new year's day, it doubled the deficit. it went from $2.3 trillion to $4.6 trillion. in fact, we did not extend the payroll tax relief. therefore, we did not help poor people.
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we made the unemployment insurance until december 31 of this year, where as we increased the estate tax relief, went back to former law and made that permanent so that couples up to $10 million have an exemption. when we think about this provision in terms of long-term debt and the stimulative ability or lack thereof, do you have an assessment of this particular policy with respect to long-term deficit reduction? >> you understated the point. we thought deficits under current law would have been $2.3 trillion over the decade and the new year's law added about $4.7 trillion to deficits over the decade, tripling the deficits
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under current law. that change increased government borrowing and reduced tax rates. those changes have opposing effects on future output. we have not done a specific estimate of the economic effects of that law. the level of government higher borrowing has an important negative effect on future economic outcomes. >> you have made the point that there are consequences of policy. this initiative helped wealthier people more. the bush-era, obama-era tax rates disproportionately helped rich people. the same with tax expenditures.
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greenspan calls them not tax expenditures but tax entitlements. is it true that the tax expenditures almost equal the medicare and medicaid and social security altogether? they almost equal that amount. that they disproportionately go to wealthier people. 60% of our tax entitlements go to maybe 20% of the wealthiest people. >> in a report last year, we showed that tax expenditures through the individual income tax and payroll tax were larger than government spending on social security, on defense, on medicare. the distribution varies across tax expenditures. some of them benefit higher income people disproportionately. others focus on lower income people. we have work underway. >> there are a lot of complaints
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about the 50% of people who do not pay any income tax. the tax expenditure program for homeowners and for charitable donations, which are good tax expenditures. there is a lot of waste in it well. i want you to stipulate in your testimony here that in fact, there is a lot of spending that is done through tax expenditure programs and it increases the income disparity. it's very regressive. >> many agree that tax expenditures are best thought of as government spending even though they appear in the budget we have work underway on the distribution of tax expenditures. it is not finished yet. >> the gentleman from indiana.
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>> i want to thank you for your eloquence and your knowledge and wisdom and your stamina. >> and yours congressman. you sat through an entire hearing. >> when you are new here, you want to learn. i appreciate the knowledge i have been able to gather. i want to focus on a comment you made earlier and make sure that i have it accurate. you mentioned that by 2023, we will have 40% more recipients of
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medicare and social security than today. >> roughly yes, congressman. >> there is a rhetorical energies spent about this, making the point that we want to make sure we keep our commitments to those who have invested for a lifetime in social security and medicare, a commitment i intend to keep. no one on either side of the aisle believes differently. if you saw that number and saw that we were going to increase by 40% by 2023, but you also knew that we would increase our workforce by 40% by 2023 so you had the same number of taxpayers footing the bill for those benefits, then you would not be nearly as alarmed by that number as you may be in a scenario that is different. i was hoping you could comment about the historical trend of how many taxpayers we have had purpose at the in those programs -- per recippient in those
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programs and where we are going in that same trend. >> we project that the labor force will grow much more slowly in the coming decades than and it has the past couple decades. one is the retirement of the baby boom generation. they boosted the labor force growth. as they retire, they will hold it down. there is a end and the women's force participation. it pushed it up in the late last century. it has not been doing that now. the labor force growth will be a good deal slower. a lot of that is outside of control of the congress. there are policies congress can enact or not that can affect labor force participation on the tax and spending sides of the budget. >> could you talk a little bit at least -- in the last 30
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years, how many workers per recipient did we have? what are the likely trends by 2023? >> as few year age, the-- ago, the population age 65 or older was 21% of the population between the ages of 20 and 64. 65 or older relative to those of working age 20 to 24. that share was 21% a few years ago. it will be 37% 25 years from now. >> there will be the were people paying for each recipient later. if you can get those numbers to me, i would appreciate it. i want to make a simple point. a lot of energy is spent talking about the injustice that would fall to those who have invested over their lifetime if they did not receive the benefits that
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they rightly should receive. probably not enough energy is spent talking about the injustice to the next generation, those who will pay more to a program from which they will receive far less if nothing is done. as we focus as a body on the importance of the justice of making sure that current recipients and those nearing retirement receive those benefits. we should spend equal energy thinking about the next generation and how we preserve the program for them. >> reproduce a report every summer or fall on the social security program, which lays out the ratio of workers to beneficiaries and about the effects of the program on people born in different birth cohorts and income distributions. >> i want to thank the director
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for being with us and for his wisdom and patience. the members have seven days to submit questions. this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013] >> president obama talked about proposals in his date of the union address. martha roby delivered the republican address, talking about sequestration and the republican alternatives in the house. >> this week i have been traveling across the country from north carolina to georgia, to here at hyde park academy in my hometown of chicago. talking about the important tasks i have laid out in my state of the union address. engine of the true agen american growth, a rising, thriving middle class. everyday we should ask
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ourselves three questions. how do we bring good jobs to america? how do we equip people with the skills those jobs require? how do we make sure that your hard work leads to a decent living? all that starts by making america a magnet for new jobs and manufacturing. our manufacturers have added about 500,000 jobs over the past three years. but we need to do now is simple. we need to accelerate that trend. we need to watch manufacturing hubs across the country that will -- much manufacturing country.acros thes the we need to and tax cuts for companies that send jobs overseas. we need to invest in research and technology that will allow us to harvest more of our energy and put more people to back to work repairing our crumbling roads and bridges. these steps will help our businesses expand and create new jobs. we also need to provide every
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american with the skills and training that they need to fill those jobs. let's start in the earliest years by offering high-quality preschool to every child in america. we know kids in these programs you better throughout their lives. let's redesign our high schools so that our students graduate with the skills that employers are looking for right now. because taxpayers cannot continue to subsidize the soaring cost of higher education, i call on congress to take affordability and value into account when determining which colleges receive certain types of federal aid rat. those are steps we can take to bring good jobs to america and equip people with the skills those jobs require. that brings us to the third question, how do we make sure that hard work leads to a decent living? no one in america should work full-time and raise children in poverty. let's raise the minimum wage. it is time to harness the talent and ingenuity of hard-working immigrants by finally passing copperheads of immigration
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reform, securing our borders, establishing a responsible path to earned citizenship and attracting highly skilled entrepreneurs that will help create jobs. these steps will help grow our economy and rebuild a thriving middle class. we can do it while shrinking our deficit. we do not have to choose between the two, we just have to make smarter choices. both parties have worked together to reduce the deficit by more than two point $5 trillion, which puts us more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances. now we need to finish the job. i disagree with republicans who think we should do that by making even bigger cuts to things like education and job training. or medicare and social security benefits. that would force our senior citizens and working families to bear the burden of deficit reduction while the wealthiest are asked to do nothing more. that won't work. we can't just cut our way to prosperity.
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i propose a balanced approach, one that makes responsible reforms to bring down the cost of healthcare and save hundreds of billions of dollars by getting rid of tax loopholes and deductionsnew york and well- connected. we should finally pursue bipartisan comprehensive tax reform that encourages job creation. all the steps i have mentioned our common sense. together they will help us grow our economy and strengthen our middle class. in the coming weeks and months, our work will not be easy and we will not agree on everything. america only moves forward when they do so together. when we accept certain obligations to one another. and the future generations. that is the american story. that is how we will write the next great chapter together. thanks, and have a great weekend. >> hello, i am martha roby. as you may know, a series of
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steep across-the-board military spending cuts known as the sequester will go into effect in less than two weeks. in his state of union address address, president obama himself admitted that these cuts were a really bad idea. but the president failed to mention that the sequester was his idea, proposed by his administration during the debt limit negotiations in 2011. now we in-house on behalf of our constituents are calling on the president to join us in replacing his sequester with better, more responsible spending cuts. just this week, top military commanders testified on capitol hill and confirmed what i had feared from the beginning about how the president's sequester will affect military installations in alabama and around the country. if the president sequester takes effect, fort rucker would leave
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students and roughly 37 hours of aviation training would be cut. these numbers are astounding. this is just one set of cuts at one base. there is a smarter way to reduce than two/defense to slash defenses seppending. unfortunately, the democrats never acted on either bill. as the clock is ticking towards this devastating sequester, the president has failed to put forward a plan to prevent it. why? because president obama and senate democrats see his sequester as an opportunity to push through another tax
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increase. no one in washington should be talking about raising your taxes when the federal government is still spending billions of dollars on things like giving people free cell phones. it is a shame that our commander in chief is using the military he leads as leverage for an ideological crusade for higher taxes. these games have to stop. our goal every day in washington should be coming together on issues like creating jobs for hard-working american families, reigning in our out-of-control debt, and ensuring america maintains a strong national defense. to meet these goals, we can come together now to replace the president's sequester, not with more tax increases, but with better, more responsible spending cuts that would our budget on a path to balance in 10 years.
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thank you for your time. may god bless the men and women of our armed forces, and may god continue to bless the united states of america. quacks on the next "washington journal.," david winston and steve mcmahon on issues facing congress. then a discussion on cybersecurity with larry clinton. president of the plowshares fund talks about north korea's nuclear weapons. >> militantly leaders testify on the budget cuts known as sic sequestration. witnesses include the chairman of the joint chiefs of staff,
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general martin dempsey, deputy defense secretary ashton carter and other pentagon officials. this is two hours and 20 minutes.
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>> good morning, everybody. the committee meets this morning to consider the impacts of sequestration and the full- year continuing resolution on the department of defense. we welcome deputy secretary of defense ash carter and chairman of the joint steve's of staff martin dempsey, -- joint chiefs of staff martin dempsey. undersecretary of defense, controller robert hale. vice chief of naval operations. general james amos. chief of staff of the air force , general mark welch. chief of the national guard bureau, general frank grass. i like to start by thanking all of you for your continued service to our nation. please convey our thanks to the soldiers, sailors, airmen and marines at home and in harms way around the globe.
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they and their families deserve our utmost support. some members of congress and commentators in the press have said that we should let sequestration go into effect, that it would be better to severely cut the budget than to work out a deficit reduction agreement that would require compromise. i could not disagree more. sequestration is arbitrary and irrational. it will not only weaken our security, but as secretary panetta said, it is "not just defense. it is education. it is child care. it is food safety. it is airport. it is law enforcement." the impact on the department of defense will be devastating. the army requested $36.6 the army requested $36.6 billion